Egypt cancels gas deal; Israeli minister warns of 'implications' for Camp David Accords

Ahmed Feteha, updated, Monday 23 Apr 2012

In surprise move, Egypt pulls out of unpopular gas export deal with Israel citing economic reasons; Knesset opposition leader says move calls for 'immediate American response'; Israeli PM says Israel survives without Egyptian gas

Netanyahu, Mubarak
Israeli Prime Minister Benjamin Netanyahu (2nd L) shakes hands with Egyptian President Hosni Mubarak (2nd R) September 1, 2010 (Photo: Reuters)

Egypt has unilaterally terminated its natural gas export contract with Israel, a shareholder in the export operating company, East Mediterranean Gas Company (EMG), said Sunday night.

EMG told Ampal-American Israel Corporation, which owns a 12.5 per cent stake in EMG, that Egypt was ending the Gas Supply and Purchase Agreement between the two parties.

“Egyptian General Petroleum Corporation [EGPC] and the [state-run] Egyptian Natural Gas Holding Company [EGAS] notified EMG that they were terminating the Gas Supply and Purchase Agreement between the parties,” the Ampal statement read.

The company added that "EMG considers the termination attempt unlawful and in bad faith, and consequently demanded its withdrawal," noting that EMG, Ampal and EMG's other shareholders were "considering their options and legal remedies as well as approaching the various governments."

In initial reactions by Israeli government officials to Egypt's decision,Yoval Steinitz, the Israeli minister of finance, expressed deep concern towards Cairo's unilateral decision.

Steinitz told Radio Israel that the decision carries serious political and economic implications for the Camp David peace accords.

Meanwhile, Shaul Mofaz, the Knesset opposition leader, described Egypt's decision as a possible breach of the Camp David accords, and called on the United States, as a broker of the peace treaty between the two countries, to immediately take a clear stand.

Israeli Foreign Minister Avigdor Lieberman went as far as to suggest bolstering Israel's military presence along the Sinai border. "The Egyptian case is much more worrisome than the Iranian one," Ma'ariv daily quoted him as saying on Sunday.

But Mohamed Shoeib, the CEO of EGAS, told Egyptian satellite CBC news on Sunday evening that "the decision we took was economic and not politically motivated. We cancelled the gas agreement with Israel because they have failed to meet payment deadlines in recent months".

Speaking to Ahram Online on Monday, Shoeib reiterated that the decision was business-related.

"This contract is between EGPC and EGAS in Egypt, and EMG -- it is a commercial contract and the terms and conditions are clear," he said.

"It is the right of the seller to terminate if the buyer fails to pay for four months," he added, indicating that this had been the case.

Israeli Prime Minister Benjamin Netanyahu insisted the agreement was still in force and that the dispute is legal in nature.

"We don't see this cutoff of the gas as something that is born out of political developments, It's actually a business dispute between the Israeli company and the Egyptian company," Netanyahu said via his spokesperson's account on Twitter.

The Israeli PM also played down the economic importance of Egyptian gas to his country.

"We have reserves of gas to make us totally energy independent, not only from Egypt. We will become one of the largest exporters," Netanyahu said referring to the Tamar gas fields Israel is currently exploring in the Mediterranean.

For its part, the Egyptian side suggested there is still the possibility of a business solution to the dispute.

Hany Dahy, head of Egypt's Petroleum Authority, said Sunday night that Egypt is ready to consider any offers from EMG regarding the late payments.

"We have approached the Israeli side for the delayed payments but to no avail," Dahy told Al-Jazeera television.

He added that the decision to terminate the contract was taken after detailed legal consultation. The contract, Dahy explained, stipulates that one of the parties can terminate its obligations if the other does not fully comply with the terms of the contract.

"All legal precautions were taken to shelter Egypt from any legal claims for reparations following the decision," Dahy said.

Egypt's Mubarak-era gas deal with Israel has been fenced with controversy since its inception.

Some critics accused the ousted Egyptian strongman of selling the gas to Israel at below international prices, thus depriving the Egyptian economy of badly needed funds.

Mubarak is currently on trial, facing charges of conspiring with fugitive businessman Hussein Salem to export gas to Israel at below market prices.

Former minister of petroleum, Sameh Fahmy, as well as other former Egyptian officials are also on trial because of the prices stipulated in the gas deal with Israel.

Egyptian courts are yet to rule in the two cases.

For their part, however, Israeli officials repeated at several occasions that the price they pay for natural gas is better than other regional exporters receive and is in line with international prices.

Other critics have decried what they describe as government complicity in financially supporting Israel's war on the Palestinians.

Egyptian authorities announced plans in November 2011 to step up pipeline security with the installation of alarm systems and security patrols carried out by local Bedouin tribesmen.

Israel, which depends on Egyptian natural gas for 40 per cent of its energy needs, has been adversely impacted by the repeated interruption of gas supplies resulting from frequent attacks on the north Sinai pipeline since last year's revolution.

The pipeline transporting Egyptian gas to Israel and Jordan has been rocked by 14 explosions – by unknown assailants – since the January 25 2011 uprising that led to the ouster of longstanding president Hosni Mubarak.

Previous explosions have resulted in weeks-long supply stoppages of the pipeline run by Gasco, an EGAS subsidiary.

Supply has been halted since a previous attack on 5 February 2012. The last attack took place on 9 April.

No group has claimed responsibility for the attacks on the pipeline, which transverses an increasingly restive Sinai Peninsula. 

The 20-year natural gas deal signed between Israel and Egypt in 2005 has been a pillar of Egyptian-Israeli economic cooperation following the historic 1979 peace treaty between the two countries.

Over the course of the last decade, Egypt has become a key natural gas producer, developing gas fields in the Mediterranean Sea. It began exporting liquid natural gas (LNG) in early 2005 to Israel as well as Jordan and Spain.


(Additional Reporting by: Michael Gunn, Ahmed Abdel Rasoul)

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